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Wednesday, April 15, 2009

China to Proceed With $9 Billion in DR Congo Plan

By Franz Wild, March 3 (Bloomberg)

China plans to spend $9 billion on mining and infrastructure in the Democratic Republic of Congo and won’t bow to a demand from the International Monetary Fund to alter the accord, the Chinese ambassador to the country said.

China’s biggest single investment in Africa will give Congo roads, railways, hospitals and schools in return for metals worth $50 billion at current prices. The IMF said in December Congo won’t qualify for more than $6 billion of debt relief unless the agreement is changed so the country won’t be the guarantor of the deal and add to its debt.

The IMF’s demands are “blackmail,” Wu Zexian, China’s ambassador to the country, said in a Feb. 25 interview in the eastern Congolese city of Goma. “The contract will not change.”

China, the world’s largest user of industrial metals, agreed in January 2008 to help rebuild the war-torn central African country in return for control of 10 million metric tons of copper and 600,000 tons of cobalt. Since then, commodity prices have plunged, closing mines and smelters, and leaving Congo seeking $667 million to help fund its budget. The country has $11.5 billion of foreign debt.

“It is a very important deal because very few, if any, investors are willing to make such a big investment in Congo at this point, considering the economic situation and the military situation,” said Timothy Armitage, an economist at research company Global Insight in London who covers sub-Saharan Africa.

Congo has a 10th of the world’s known copper reserves and a third of all cobalt, a rare metal used in batteries and jet engines. Mines and smelters in the southern Katanga region have closed after commodity prices tumbled.

Copper for delivery in three months on the London Metal Exchange traded at $3,495 a ton as of 12:10 p.m. local time. It has plunged 60 percent since trading at a record in July. Cobalt, which fell 58 percent last year, traded last week at $12 a pound, according to data compiled by Metal Bulletin.

‘Robust’ Agreement

Under the terms of the Chinese investment, $6 billion will be spent on infrastructure. The work is being carried out by China Railway Engineering Corp. and Sinohydro Corp. China Exim Bank and China Railway are funding the deal. The investment doesn’t “burden” Congo with debt, Wu said.

The remaining $3 billion will fund Sicomines Sarl, a mining joint venture between the Chinese companies and Congo’s state- owned metals producer Gecamines. The final investment will depend on a Sicomines evaluation, which is due to be completed in June.

The agreement is ”robust” and won’t change, Deputy Mines Minister Victor Kasongo said on Feb. 10. Congo will receive the initial $250 million it was due upon signing of the December 2007 deal ”soon,” Wu said this week.

Decades of mismanagement and two civil wars between 1996 and 2003 left most of Congo’s 62 million people without a regular income. A lack of maintenance has left roads impassable between the major cities of the former Belgian colony, which is the size of Western Europe. President Joseph Kabila pledged to rebuild the mining industry before winning elections in 2006.

Sicomines, which is due to start operating in 2011, will produce as much as 400,000 tons of copper and 19,000 tons of cobalt a year.